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tv   [untitled]    June 19, 2012 9:30am-10:00am EDT

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against recurrence. we've appoint d entirely new leadership for cio. importantly our team has made progress in reducing our risk going forward. this does not reduce the loss already occurred and does not preclude future losses, it does reduce the probability and magnitude of potential future losses. we are also conducting an stensive view of this incident, wli our board of directors is independently overseeing. in the normal course of business, we can never say we won't make mistakes, we know we will, we do believe this was an isolated event. we will not make light of these losses, but they should be put into perspective. no client, customer or taxpayer money was impacted by this
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event. our balance sheet remains intact. as of quarter end we held $190 billion in he can wity and well over $30 billion in loan loss reserves. we maintain extremely strong ratios. as of march 31, 2012 -- 10.4%. both are among the highest levels in the banking sector. we expect both these numbers to be higher by the end of the year. all of our lines of business remain profitable and continue to serve consumers and businesses. and while there are sfil two weeks left in the second quarter, we expect to be solidly profitable. in short, our strong capital business and diversified business model did what they were supposed to do, cushion us against an expected loss in one area of our business. while this is embarrassing, it will not detract our employees
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from our main mission to serve clients and consumers in their communities around the globe. during 2011 j.p. morgan chase raised capital and provided $1.8 trillion for consumer and commercial kos murs, up 18% from the procedure year. we also provided more than $17 billion of credit to u.s. small businesses up 52% over the prior year. and over the past three years, in the face of significant economic head winds, we made the decision to step up as we did with markets in turmoil the only bank to commit to lend money to the states of california, new jersey and illinois. all of these activities skom with risks. we've remained focused on managing the risks of our business particularly given today's considerable global and economic volatilitvolatility. we well emerge a stronger,
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smarter and better company. i would also like to speak directly for a moment to our 260,000 employees. i want them all to know how proud i am of the company and proud of all of what they do every day for their clients and their communities. thank you, i would welcome any questions you might have. >> thank you, mr. dimon, for your testimony. >> opening remarks from jamie dimon last week. and now live testimony from jamie dimon appearing this morning before the house financial services committee. this hearing started about three minutes ago. >> in the cases of aig, gm, fannie mae, freddie mac. and could we have order among some of the staff?
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thank you. this is how the system is supposed to work. those who take the risk are the ones who suffer the loss or realize the gain. it stands in sharp contrast to the regime of funded bail outs. we've experienced in the cases of aig, gm, fannie mae, freddie mac and slin dra. because the bank has more than sufficient capital, the overall system is protected by being brought down from the mistakes of an institution that is deemed too big to fail. the most important lesson to be learned has nothing to do with any of the 400-plus rules found in the 2300-page dodd frank act, the most important lesson is how safe the capital is to our overall financial system and
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there is no capital or liquidity problem at jpmorgan and i think that is say primary concern that regulators, you're to be complimented that you've ensured that there is sufficient capital at that institution. a bank with sufficient capital is able to absorb losses, whether they're caused by external factors beyond the institution's control or internal problems caused by poor risk management. a bank with sufficient capital is not a threat to the financial system, even if regulators fail to do their jobs. and a bank with sufficient capital can take risk without putting taxpayers in jeopardy. just as jpmorgan should be and is being held accountable for its risk management failures, accountability must also be demanded of the federal regulators who oversee the
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bank's activities. unfortunately because dodd frank failed to -- as house republican's pro poused, achieving regulatory accountability is every bit as important now as during the height of the financial crisis. how inefficient and fragmented is the current framework? sitting before us today are five different regulators all of whom have some responsibility over these trades and several of whom have examiners imbedded in jpmorgan but none of them was aware of the bank's hedging strategies or raised concerns. perhaps the complexity of the structure and of the rules itself makes it impossible for any individual regulator to do their job. after all the rule proposal in its is staggering in length and
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complexity. the regulators cannot say whether it would have prevented jpmorgan from making these trades. capital is our greatest protection against the systemic risk posed by institutions that are too big to fail. i'm pleased we will have the opportunity to discuss this with our witnesses and i thank each of them for being here. i want to emphasize the point that jpmorgan and its shareholders, not the bank's clients, not the taxpayers, and more importantly, not the taxpayers are the ones paying for the bank's mistakes. this is how the system is supposed to work, and it has. i now recognize ranking member opening statement. >> i will begin by confusing that my memory appears to have failed me with regard to the proposals from my republican colleagues for supervisory consolidation. i do know the instructor that we
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inherited when we took over in 2007 was a little more complex than the current one. i do not remember during the 12 years of republican rule that any such -- if one existed. significant proposals to consolidate during the consideration of the bill. i acknowledge there was a major problem here. the biggest problem is we have a separate sec and cstc sharing over the derivatives. i do not think it has ever been politically possible given the cultural differences within our country 245 it reflects. now on to more serious subjects, to me this is not a hearing about jpmorgan chase. they are an example of the larger issue, which is the effort by my republican colleagues, with help from some in the industry to regulate derivatives that has been a drive that they have made.
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they haven't done it helped on, because i do believe there is some popularity in the country for the notion that we should undo the era of 2000, when senator graham led the charge for total deregulation. as we sit here now, shortly, the appropriations committee will be voting on a budget proposed for next year for the commodity futures trading commission which will reduce the amount they have from this year to next year. so while there is going to be criticism for not washing the windows of people's cars and other things, this republican majority is prepared to reduce their funding. they will be given by the republicans $180 million. i stress million, because with regard to derivatives, that's the only time it's million and not billion. the senate fortunately has acted to do the full funding and that's one of the issues.
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secondly, this committee over my objection and many of us, voted to exempt from regulation the derivative transactions conducted by the foreign subsidiary and american institution, jpmorgan chase's london operation, aig and others. so there are other bills that they have been trying to put forward, too. some take small pieces and make some sense. but let's be clear. this is the issue and the relevance of jpmorgan chase is that it shows this. jpmorgan r. jpmorgan chase is considered to be a very well run bavg. if you can get this loss of several billion, in a fairly short period of time, it's an indication of the problems with derivatives. now jpmorgan chase, mr. dimon tells us, has a fortress balance sheet. but not every institution does. so institutions may have a picket fence balance sheet or a
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chain link fence balance sheet, and yes we would like all of them to get up there, but we're not all there yet. so the notion that we should under fund the main regulator of derivatives that we should exempt foreign subsidiaries from it, these are very grave errors. and that's the question. and the very fact that jpmorgan chase and mr. dimon was taken by surprise in this, it get out of his control, i believe if you look at the various lines of business of jpmorgan chase, of others banks, you would find it would be unlikely this could happen in any other line of business. derivatives are a particularly complex, highly leveraged and until our legislation is fully implemented, obscure. and that's the point. this is an example and as yes, we're not micro managing
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jpmorgan chase. what we are saying is the fact that mr. dimon and this bank were taken by surprise and lost so much money so quickly didn't fully understand what they were doing, and made the choice when they were confronted with a problem not to try to wind the position down, but in fact to expand the use of derivatives so that good derivatives would come to the aid of bad derivatives, multiplying the error. these are arguments for the kind of regulation we need. it did not cause a systemic problem here. but waiting until it happens -- the question is, does this not argue against the proposal to deregulate derivatives and what we see on the part of our republican colleagues is a systemat systematic, piece by piece, bite by bite effort to render us to
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be unable to regulate derivatives to go back to where we were before the terrible crisis of 2008. >> i'll thank the ranking member. the chairman of the subcommittee on financial institutions is recognized for one minute. >> we're here today to let you risk management. normally the losses of a private company would not be something that would come before congressional hearings. however we know that dodd frank failed to end too bill big to fail and therefore institutions like jpmorgan are still viewed as being systemically important firms that may be bailed out by taxpayers in times of extreme. as long this committee should be vigilant in oversight to ensure regulators in private firms are employing significant risk
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management -- 12 they were holding $128 billion of tier one capital. the questions i have. a less well capitalized firm could they survive the loss? there's five regulators here to talk about this, but why was this not seen and not shared if it was seen. >> thank you. the ranking member -- >> thank you very much. i thank you for this hearing and i think mr. frank has set the tone and direction for this hearing. and i would like to continue in that vein. before we get into the specifics of the circumstances surrounding jpmorgan chase's trading loss, i think it's important to remember the context underlying this hearing. we're approaching the four-year
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anniversary of the most significant financial crisis since the great depression. millions of american families have lost their homes to foreclosure, many of which were completed with robo-signed or otherwise fraudulent paperwork. for those that remained in their houms, individuals have lost trillions of in housing wealth, as well as losses to retirement funds. so it's within this context that we hold this hearing today. let's make no mistake. this is not just about a 2 or $3 billion trading loss, it's about the 10 billion or the $50 billion loss that could come next, either at jpmorgan or any other bank that's backed by the u.s. taxpayer if we don't stand up for financial reform. fortunately we passed dodd frank to respond to this crisis, but nearly two years since the
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passage of the act we're still waiting for many of these provisions to be finalized. industry complains about all the lingering uncertainty over dodd frank, but the truth is that the industry lobbying is a central reason for these delays. as i've said before, dls a death by a thousand cuts approach undermining financial reform. which includes pushing bills to undermine dodd frank right here in congress, lobbying our agencies to weaken the rules and suing our regulators when they don't like the rules. and many of my republican colleagues here in the house are come plis it in this effort. so i wanted to employ the regulators here today to resist the pressure they face to weaken the rules and get their work done and finish their rule making. otherwise we may sit here a year from now wishing that we would
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have acted just a bit faster to prevent the next financial blowup. >> next, the chairman of the subcommittee on capital markets, for one minute. and i think the chair. the recent trading loss at jpmorgan is obviously regrettable and our banking supervisors in charge of supervising institutions should be examined themselves and asked what happened. i'm still surprised about the hemming and hauing that we have heard by my colleagues on the other side of the aisle, when a private business losses money, when the institutions we're in is losing literally billions of dollars every day. it makes thank you wonder, where was the outrage when bear stearns was bailed out with billions of dollars and republicans asked for a committee hearing to look into it and we never had the hearing. where was the outrage when fanny
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and freddy losses billions. where was the outrage when over a half a billion when the president's green energy problem? where is the outrage. $2 billion is certainly significant. unfortunately my colleagues on the other side of the aisle continue to demonize losses on the private sector but fail to look at losses of taxpayers every day here in congress. i yield back. >> thank you, mr. frank. >> yes, previous speaker talked about fanny and freddy and started to say, i'd like to listen to the tape, he didn't finish the sentence. we're no further than we were before. the gentleman is the chairman of the subcommittee ha is over fanny made and freddie mac, when the gentleman laments the
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problems as continuing, he is i guess confessing his inability to do anything about it. in fact when we were in power, we did exceed to the wishes of the bush administration to put them in a conservetorship. nothing has happened. i yield back. >> i think the point has been made that taxpayers didn't lose any money. the shareholders lost $23 billion in market value. my colleague from new jersey pointed out that today the taxpayers will go $3.6 million in the hole. i think the two items i want to focus on in this hearing, the regulatory issue, where we had em bedded regulators in this industry and we didn't seem to catch this issue. it's a point that i've been trying to make on a number of
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hearings we've had in my committee, is when we've had regulatory failure, it brings to question a lot of people call i need the regulators to do their job. then i think the other issue that is concerning is the disclosure and transparency of some of these trades and what members of the executive management of these companies are saying. we had just a few days before this problem became a real issue, the ceo saying this is like a tempest in a teapot. we also had the cfo of mf global saying just a few days before that company went bankrupt that they've never been in better shape. i think these kind of issues are important issues we need to discuss today. >> i'm sorry, mr. maloney for one minute. >> thank you. welcome to the regulators. since the financial crisis, we have worked to improve
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regulation of the financial industry. the basic questions today are, are we on the right track to prevent another 2008 from happening. do regulators now have the tools to prevent another crisis. and are ceos managing their institutions with the lessons they learned from 2008. why were the losses incurred in the london unit. could they have been incurred in new york as easily. by every indication, jpmorgan chase is a well-managed firm. so if this trading loss could happen there, it could happen at another large financial institution. mr. dimon testified last week that there were parts of dodd-frank he supported and parts that needed to be clarified, not overturned. i think the industry, regulators and policy makers can agree that the voelker rule, including the market making provision, needs to be as clear and
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straightforward as possible, and i believe it should be put in place as soon as possible. thank you. >> thank you. mr. hensarling, vice chairman of the committee, for two minutes. >> thank you, mr. chairman. thank you for holding a very important hearing. i would like to associate first my comments with that of the gentleman of new jersey. i do find it somewhat interesting in an institution that unfortunately now witnesses serial trillion dollar annual deficits as an order of magnitude, $2 billion, although certainly a significant sum, seems to pale in comparison, so i am somewhat curious about certain members' levels of outrage. many said when the news broke about the $2 billion trading loss at jpmorgan, they said i told you so. we needed the voelker rule. well, some of us also may
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reflect well, i told you so, maybe we don't need institutions in america that are too big to fail, but unfortunately, mr. chairman, as you well know, dodd-frank has codified too big to fail. with the ability to designate systemically important financial institutions, we codified too big to fail into federal law, empowering the fdic to wind down these institutions and allowing them to borrow the fdic up to the book value of the institution from taxpayers, an amount that could be outstanding in the trillions of dollars again. we have codified too big to fail. mr. chairman, before we get too far down the dodd-frank road, it is time for this nation to reexamine this. in addition, i think we should be very careful about outlawing risk. without risk, we do not have a rate of return.
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without a rate of return, we do not have investment, we do not have jobs in an economy that 3 1/2 years after the president has taken office, still suffers and our constituents are still in search of jobs. so i thank you for calling the hearing. i look forward to hearing the testimony of the witnesses. thank you. >> thank you. >> how much time do we have remaining? >> one minute. >> mr. capuano. >> for one minute, mr. capuano. >> thank you, mr. chairman. i had a wonderful opening statement but i guess i've been thrown off it. if you keep saying the same thing over and over and over regardless of whether it's true or not, apparently it will become fact. i want the red sox to win. red sox are going to win. red sox are going to win. red sox are going to go in. they're still in last place. you can say it all day long but dodd-frank did not coddify too big to fail. just the opposite, it prevented it from happening in the future. amazing. where was the outrage? you must have missed the hearings we had. it made me a movie star, mr. garrett. it made me a movie star by
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expressing the outrage of the american people when we were on that side of the aisle in the majority passing the most important bill in a lifetime in the dodd-frank bill to express outrage the way we are supposed to through legislation. that legislation that you and your friends have decided to vote against to try to kill it at every opportunity, to underfund, to make sure that the regulators cannot do their job, and you won't even give them the time to put the regulations in place to see if they happen. the truth is, i'm not outraged by this particular loss, because the numbers are relatively small in comparison to other things. however, i do think it's important to ask thoughtful, insightful questions about -- >> thank you. >> -- why they happened and how we can avoid them from happening in a bigger way in the future. that's the outrage. >> thank you. i see that our first panel, you can see we're not quite ready to break into kumbaya moment.
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welcome to the serenity of the financial services committee. this concludes our opening statements. without objections, all members' written statements will be made a part of the record. the chair wishes to remind our guests that the manifestation of approval or disapproval, including the use of signs and placards, is a violation of the rules which govern the committee and the chair wishes to thank our guests in advance for their cooperation in maintaining order and decorum. let me say that there is agreement i think among all the panel that your agencies are all functioning under an increased workload, a greatly increased workload, and that you are facing many challenges with not only the economy, but with adopting new rules and increased
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supervision, and that you are functioning under a budgetary restraint, particularly i think the s.e.c. and cftc. your workload has greatly increased and your budget doesn't reflect this. >> mr. chairman, parliamentary inquiry? are we going to hear the opening statements? >> yes. we'll do that right now. right now would be great. >> you seem to be making -- >> no, no. not at all. i was just introducing the first panel, thanking them for their attendance and -- it's the prerogative of the chair. >> oh, no, mr. chairman. the chairs are under the same time limits as any other member. >> i'm saying if in introducing the panel, you wish to protest -- all right. we'll go forward and remind the
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witnesses that without objection, your written statements will be made a part of the record and you will each be recognized for a five-minute summary of your testimony. our first panelist is thomas curry, comptroller of the currency, and this is your first appearance before our committee since you were sworn in as comptroller in april. we look forward to a productive working relationship with you, as we did at the fdic. welcome your attendance and thank you, mr. curry. >> thank you, chairman bachus. ranking member frank and committee members. i appreciate this opportunity to discuss the occ's perspectives on jpmorgan chase's losses -- >> could you pull the mike a little closer? i think some people are having trouble hearing. thank you. >> my written testimony also includes background on our approach to supervising large banks in our efforts to raise
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supervisory expectations on these institutions. this material provides important context for understanding how we are increasing our awareness of risks facing banks and the banking system, ensuring these risks are understood and well managed and raising our expectations for governance and oversight, capital reserves and liquidity. it will take some time to achieve these objectives and we must be vigilant in maintaining our course. that course leads towards strong, effective supervision and toward improved soundness of our banking system so that it can fairly and effectively serve its customers and communities. the occ is the primary regulator of jpmc's national bank where the transactions leading to its losses occurred, and we are responsible for the prudential supervision of the bank. in early april, informati

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